STOCK-BASED COMPENSATION

The Company maintains certain stock-based compensation plans that were approved by the Company’s stockholders and are administered by the Board of Directors, or the Compensation and Organization Committee of the Board. The stock-based compensation plans provide for the granting of stock options, shares of restricted stock awards (“RSAs”), restricted stock units (“RSUs”), stock appreciation rights and stock bonuses to employees, non-employee directors, consultants, and service providers.

The components and classification of stock-based compensation expense were as follows (in thousands):



	Three Months Ended				Six Months Ended
	June 29, 2018		June 30, 2017		June 29, 2018		June 30, 2017
Stock options	$	214	$	283	$	545	$	993
RSAs and RSUs (time-based)	1,338		1,155		3,416		3,359
Performance-based RSUs (“PSUs”)	1,333		1,843		2,146		3,598
Total stock-based compensation expense	2,885		3,281		6,107		7,950
Less: Discontinued operations	685		349		924		582
Stock-based compensation expense - continuing operations	$	2,200	$	2,932	$	5,183	$	7,368

Cost of sales	$	200	$	259	$	376	$	337
Selling, general and administrative expenses	1,968		2,493		4,747		4,493
Research, development and engineering costs	31		150		55		245
Other operating expenses	1		30		5		2,293
Discontinued operations	685		349		924		582
Total stock-based compensation expense	$	2,885	$	3,281	$	6,107	$	7,950

(7.) STOCK-BASED COMPENSATION (Continued)

During the first quarter of 2017, the Company recorded $2.2 million of accelerated stock-based compensation expense in connection with the transition of its former Chief Executive Officer per the terms of his contract, which was classified as Other Operating Expenses.

The weighted average fair value and assumptions used to value options granted are as follows:



	Six Months Ended
	June 29, 2018			June 30, 2017
Weighted average fair value	$	14.89		$	10.58
Risk-free interest rate	2.21		%	1.69		%
Expected volatility	39		%	37		%
Expected life (in years)	4.0			4.1
Expected dividend yield	—		%	—		%

The following table summarizes the Company’s stock option activity:



	Number of Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In Years)	Aggregate Intrinsic Value (In Millions)
Outstanding at December 29, 2017	931,353		$	30.89
Granted	28,447		45.13
Exercised	(108,305	)	33.47
Forfeited or expired	(17,542	)	38.77
Outstanding at June 29, 2018	833,953		$	30.87	5.4	$	28.2
Exercisable at June 29, 2018	701,729		$	29.88	4.8	$	24.4

During the six months ended June 29, 2018, the Company awarded grants of 0.3 million RSUs to certain members of management, of which 0.2 million are PSUs and the remainder are time-based RSUs that vest over three years. Of the PSUs, 0.1 million of the shares subject to each grant will be earned based upon achievement of specific Company performance metrics over a three-year performance period ending January 1, 2021, and 0.1 million of the shares subject to each grant will be earned based on the Company’s achievement of a relative total shareholder return (“TSR”) performance requirement, on a percentile basis, compared to a defined group of peer companies over a three-year performance period ending January 1, 2021. The number of PSUs earned based on the achievement of the Company performance metrics and TSR performance requirements, if any, will vest based on the recipient’s continuous service to the Company over a period of generally one to three years from the grant date. The time-based RSUs generally vest ratably over a three-year period.

The grant-date fair value of the TSR portion of the PSUs granted during the six months ended June 29, 2018 was determined using the Monte Carlo simulation model on the date of grant, assuming the following (i) expected term of 2.92 years, (ii) risk free interest rate of 2.28%, (iii) expected dividend yield of 0.0% and (iv) expected stock price volatility over the expected term of the TSR award of 40%. The grant-date fair value of all other restricted stock awards is equal to the closing market price of Integer common stock on the date of grant.

(7.) STOCK-BASED COMPENSATION (Continued)

The following table summarizes RSA and RSU activity:



	Time-Vested Activity		Weighted Average Fair Value
Nonvested at December 29, 2017	163,431		$	35.96
Granted	147,878		49.30
Vested	(11,999	)	49.78
Forfeited	(4,453	)	43.62
Nonvested at June 29, 2018	294,857		$	41.97

The following table summarizes PSU activity:



	Performance- Vested Activity		Weighted Average Fair Value
Nonvested at December 29, 2017	469,889		$	32.37
Granted	159,669		45.37
Vested	(127,191	)	34.29
Forfeited	(147,555	)	34.31
Nonvested at June 29, 2018	354,812		$	36.72